Brexit, US third-quarter earnings, Chinese economic data


This will be a key week for Brexit because Boris Johnson will need to ask Brussels for an extension on the UK’s withdrawal from the EU under the terms of the Benn Act if parliament has not approved either a deal or no-deal exit by Saturday.

The House of Commons is due to hold a special session at the end of the week — dubbed Super Saturday — the first such session to be held on a weekend since 1982, when Falklands crisis was debated.

The Queen will open parliament on Monday with a speech outlining Mr Johnson’s legislative agenda for the first time since the prime minister took office in July. The European Council meets in Brussels on Thursday and Friday, where any deal reached will need to be signed off.

Mr Johnson’s team is believed to be drawing up plans to fudge the most controversial issue dogging negotiations with Brussels: whether Northern Ireland should be part of the EU customs union to avoid the need for a hard border with the Irish Republic.

Officials close to the negotiations say Mr Johnson would keep Northern Ireland in the UK customs territory in legal terms, meaning it would benefit from any free trade deals struck with third countries, but in practical terms it would be part of the EU customs area.

Jacob Rees-Mogg, a leading anti-EU figure, sought to soften up Conservative Eurosceptic MPs to the idea at the weekend, urging them to accept that “compromise will inevitably be needed” in the run-up to Thursday’s summit.

US banks will take the lead in this week’s big corporate show, when third-quarter reporting season begins — with the third successive quarter of falling earnings forecast.

The mining sector will also feature midweek with operational updates from BHP and Rio Tinto.

Government ministers, central bankers and chief executives gather for the annual meetings of the IMF and the World Bank Group, which begin in Washington on Thursday.

Kristalina Georgieva will preside for the first time as new managing director of the IMF, which also releases its influential twice yearly report on developments in the global economic system on Tuesday, when projections for global growth are expected to be cut.

Background reading

Lawrence Summers: Global economy is at risk from a monetary policy black hole

Embattled Hong Kong leader Carrie Lam will lay out her policy objectives in a key speech on Wednesday, followed by the official withdrawal of the extradition bill that began nearly four months of protests.

The central banks are quiet this week but the US Federal Reserve does issue its Beige Book of economic conditions on Wednesday.

It is, however, a big week for Chinese economic data. There are also some key US reports and Argentina has data out that will be of interest as the election approaches.

Mozambique goes to the polls on Tuesday and Poland’s ruling Law and Justice party looks set to return to power this week after Sunday’s election.

Earnings

Wall Street analysts are braced for a third consecutive quarter of falling earnings, the longest streak in more than three years, with the energy and tech sectors expected to be worst hit.

S&P 500 companies are expected to report an approximate 4.1 per cent fall in earnings per share, according to FactSet’s aggregation of the average EPS estimates for the third quarter of all the constituents in the index. That follows a 0.4 per cent drop in the second quarter and a 0.3 per cent slide in the first.

If that holds true it will mark the first time in three years that the S&P 500 has reported three straight quarters of earnings declines. It will also be the biggest year-on-year decline since the start of 2016 — when earnings slipped 6.9 per cent.

Earnings expectations for Morgan Stanley and Goldman Sachs have been sharply pared back ahead of this week’s results, after a torrid run of stock market listings and a slowdown in M&A activity weighed on investment banking performance.

Analysts surveyed by Bloomberg have slashed their third-quarter earnings estimates for Goldman by more than 15 per cent in the past four weeks, while their forecasts for Morgan Stanley have come down by almost 10 per cent.

Goldman’s revision, which equates to a 25 per cent fall in year-on-year profits, partly reflected the loss the bank is likely to take on its stake in WeWork.

JPMorgan Chase, Goldman, Citigroup and Wells Fargo report on Tuesday, Bank of America and Morgan Stanley on Thursday.

Analysts are expecting a 10 per cent year-on-year boost to earnings at Citibank, and smaller improvements at JPMorgan and BofA.

At the banks with big retail operations, in particular JPMorgan and BofA, investors will be looking for evidence that lending margins have stabilised. Falling interest rates resulted in both banks trimming their targets for interest income earlier this year.

Banks aside, 50 companies on the S&P 500 are scheduled to report this week, including Netflix, IBM, Honeywell, Schlumberger and CSX.

Background reading

In the UK, housebuilders Barratt and Bellway are expected to fare fairly well in a tough market. Asos, Unilever and WH Smith also report.

Economic data

Investors await a deluge of numbers from China that will offer insights into how the trade war with the US has affected its economy. Third-quarter gross domestic product is expected to show a continued slowing trend. Inflation, industrial production, trade and retail sales data are also due.

Background reading

Gavyn Davies: China bucks the trend with solid activity growth

In the US, retail sales data for September released on Wednesday are forecast to show modest growth of 0.3 per cent, but there are concerns about whether consumers will start to curb spending in response to trade uncertainty and slower growth.

Industrial production figures out on Thursday are not expected to be so rosy. The forecast is for a 0.2 per cent decline overall and a 0.3 per cent drop in the manufacturing component, underscoring recession fears.

In Europe, German economic sentiment indicators out on Tuesday are likely to reveal further deterioration from already-negative levels.

The final print of eurozone inflation is out on Wednesday, with 0.9 per cent year-on-year growth forecast for the core consumer price index in September, well below the European Central Bank’s target.

Argentina’s government will start publishing a final round of key economic indicators before the presidential election at the end of the month.

September consumer price figures due on Wednesday are expected to show a month-on-month jump of 5.8 per cent, the biggest in a year.



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